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Quarterly Earnings at Maple Leaf Take a Tumble

01 November 2013

CANADA - Commenting on the company's latest quaterly results, Maple Leaf Foods' CEO said that "commercial performance is solid" but that it had been a "very challenging period of transition for the Maple Leaf organisation".

In its financial results for the third quarter ended 30 September 2013, Maple Leaf Foods Inc. has reported Adjusted Operating Earnings for the third quarter was $18.6 million compared to $47.9 million last year. Year-to-date Adjusted Operating Earnings were $12.0 million compared $102.3 million last year.

Adjusted Earnings per Share was a loss of $0.01 compared to Adjusted Earnings per Share of $0.13 last year. Year-to-date Adjusted Earnings per Share was a loss of $0.25 compared to Adjusted Earnings per Share of $0.21 last year.

The Bakery Products Group achieved Adjusted EBITDA margins of 13.5 per cent, reflecting contributions from efficiency improvements and volume growth in the UK business.

Michael H. McCain, President and CEO of Maple Leaf Foods commented: "This is a very challenging period of transition for the Maple Leaf organisation, as the short-term impact of volatile protein market conditions, combined with the significant cost of change, has been material.

"We have five significant operational start-ups occurring simultaneously, during a year when commodity markets have not been friendly. However, these transitory conditions do not detract from the underlying strength of the business or the strategic direction.

"Our commercial performance is solid and we are satisfied with the progress we are making in implementing our prepared meats strategy. Our bakery business is performing at record levels as we come into the back half of 2013. Through exploring strategic alternatives, we are committed to optimizing the value of this business, either as part of Maple Leaf or under new ownership," said Mr McCain.

Financial Overview

Maple Leaf Foods Inc. sales of $1,150.2 million for the third quarter declined 2.5 per cent from last year, or 1.1 per cent after adjusting for the impacts of divestitures and foreign exchange, due to lower volumes which were partly offset by higher pricing and improved sales mix. For the nine months ended 30 September 2013, sales decreased 3.6 per cent from the prior year to $3,364.2 million, or 2.1 per cent after adjusting for divestitures and foreign exchange, due to the same factors.

Adjusted Operating Earnings for the third quarter decreased 61.1 per cent to $18.6 million compared to $47.9 million last year, as earnings in the Protein Group were impacted by higher costs related to the implementation of its prepared meats strategy and poor commodity market conditions, which were only partly offset by stronger Bakery Group results. For the nine months ended 30 September 2013, Adjusted Operating Earnings declined 88.2 per cent to $12.0 million compared to $102.3 million last year, due to similar factors noted above.

Net earnings from continuing operations for the third quarter were $nil (a loss of $0.02 per basic share attributable to common shareholders) compared to $11.4 million ($0.06 per basic share attributable to common shareholders) last year. Net earnings from continuing operations included $15.1 million ($0.08 per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2012: $4.6 million, or $0.02 per basic share attributable to common shareholders). Year-to-date net loss from continuing operations was $42.2 million (loss of $0.34 per basic share attributable to common shareholders) compared to net earnings of $1.2 million (a loss of $0.02 per basic share attributable to common shareholders) last year. The year-to-date net loss included $77.9 million ($0.40 per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2012: $34.7 million, or $0.19 per basic share attributable to common shareholders).

Adjusted Earnings per Share in the third quarter was a loss of $0.01 compared to Adjusted Earnings per Share of $0.13 last year. Year-to-date Adjusted Earnings per Share declined to a loss of $0.25 compared to Adjusted Earnings per Share of $0.21 last year.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of on-going operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this News Release for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

Protein Group

Results for the Protein Group, which include the operations of the Company's Meat Products and Agribusiness Groups, should be viewed in totality due to intercompany transactions and correlated factors within these operations.

Sales for the third quarter in the Protein Group declined 2.8 per cent to $757.3 million from $778.8 million last year. For the first nine months, sales decreased 4.6 per cent to $2,205.4 million. The quarter and year-to-date declines were primarily driven by lower volumes and the divestiture of the Company's potato processing operations, partly offset by higher pricing and sales mix.

Adjusted Operating Earnings in the third quarter was a loss of $20.1 million compared to Adjusted Operating Earnings of $18.9 million last year, reflecting transitory costs related to commissioning newly expanded prepared meats facilities and continued weakness in commodity market conditions.

For the first nine months, Adjusted Operating Earnings decreased to a loss of $71.8 million compared to Adjusted Operating Earnings of $45.2 million last year, due to similar factors noted above as well as lower prepared meats volumes in the first quarter of 2013.

Meat Products Group

Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf®, Schneiders® and many leading sub-brands.

Meat Products Group sales for the third quarter declined 2.8 per cent to $750.9 million, or 1.0 per cent after adjusting for the impact of divesting the Company's potato processing operations and foreign exchange. Lower volumes in primary pork processing and the prepared meats business were partly offset by higher pricing in primary processing and favourable sales mix in the prepared meats business. For the first nine months, sales declined 5.0 per cent, or 3.0 per cent after adjusting for the impact of divesting the Company's potato processing operations and foreign exchange. Volumes in the prepared meats business decreased by approximately 8 per cent in the first quarter as consumers responded in the short-term to higher prices, but subsequently improved in the second and third quarters.

Adjusted Operating Earnings for the third quarter declined to a loss of $21.6 million compared to Adjusted Operating Earnings of $22.9 million last year, due to the factors discussed below.

The Company is in an intense phase of implementing a strategy to increase scale, productivity and profitability in its prepared meats network. This includes commissioning activities at three recently expanded facilities, a new distribution centre servicing Central and Eastern Canada, and a newly constructed state-of-the-art scale plant in Hamilton, Ontario. Supporting these activities resulted in transitional costs of approximately $15 million during the quarter (2012: approximately $3 million) and approximately $34 million for the nine months ended September 30, 2013 (2012: approximately $8 million), particularly related to installing new technologies, transferring volume, and providing incremental resources required to support these start-ups. Beyond the transformation initiatives, earnings were negatively impacted by higher raw material and other inflationary costs, primarily due to an increase in fresh pork prices. Partly offsetting these declines were improvements in sales mix, resulting from several new product launches in the second half of 2012 and the first half of 2013.

Earnings in primary pork processing continued to be negatively affected by the devaluation of the Japanese Yen, which lowered profitability on export sales. North American primary pork processing spreads also contracted as live hog costs outpaced an increase in pork prices. Earnings in fresh poultry were consistent as lower primary processing spreads were offset by lower selling, general, and administrative costs.

The sale of the Company's potato processing operations reduced Adjusted Operating Earnings by approximately $3 million in the third quarter compared to last year.

For the first nine months, Adjusted Operating Earnings were a loss of $43.6 million compared to Adjusted Operating Earnings of $55.8 million last year due to similar factors noted above, as well as lower volumes in the prepared meats business in the first quarter of 2013. The sale of the Company's potato processing operations reduced Adjusted Operating Earnings for the nine months ended September 30, 2013 by approximately $10 million compared to last year.

Agribusiness Group

Sales for the Agribusiness Group, which includes Canadian hog production operations, for the third quarter of $6.3 million were consistent with the prior year. Sales for the first nine months increased 38.3 per cent to $24.4 million from $17.7 million last year due to higher hog volumes and higher pricing on toll feed sales.

Adjusted Operating Earnings in the third quarter increased to $1.6 million compared to a loss of $4.0 million last year. Hog production earnings increased due to the reversal of a provision, reflecting the termination of a preliminary arrangement with a supplier to receive hogs on a cost of production basis rather than at market price. Earnings also benefited from an increase in live hog prices that more than offset higher feed costs. Partly offsetting these increases was a lower contribution from hedging programs compared to last year.

Year-to-date Adjusted Operating Earnings decreased to a loss of $28.3 million compared to a loss of $10.6 million last year due to higher feed costs that outpaced an increase in hog prices, and a lower contribution from hedging programs. The third quarter provision reversal noted above did not impact year-to-date results as the costs associated with the provision were recorded in the first and second quarters of 2013.

Sale of Rothsay Business

The Company disposed of its Rothsay by-product recycling business during the fourth quarter, pursuant to an agreement to sell the business to Darling International Inc. The operating results of the Rothsay business have been classified as discontinued operations and 2012 amounts have been presented as discontinued operations on a comparable basis. The Rothsay business was previously reported in the Agribusiness Group. Earnings per share from discontinued operations were $0.11 for the third quarter (2012: $0.11) and $0.31 for the nine months ended September 30, 2013 (2012: $0.32).

Further Reading

You can view the full report by clicking here.

 

ThePoultrySite News Desk



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